Yesterday, we published a Delphi Pro report highlighting the cultural opportunity Ordinals brings to NFT art collectors. The report — available for Delphi Pro subscribers — dissects artistic movements with Ordinals and elaborates on the thesis for this early ecosystem.

Now I’m going to be honest. I’m no NFT collector. I don’t care much about the art, except in rare cases. I’m in it for the community sometimes, but mostly just to speculate and try to turn a profit. So there was one specific paragraph in the report that stuck out to me:

“Here’s another perspective to consider — could specific Ordinals collections be perceived as a form of leveraged exposure to BTC? This is akin to how CryptoPunks are often seen as leveraged exposure to ETH. This narrative seems plausible, particularly as more collectors from the Bitcoin community enter the Ordinals scene and denominate their wealth in BTC. Watch for this, as collections that build this narrative around themselves can drive more demand.”

Ok, now you’ve got my attention. I remember how top tier NFT collections like CryptoPunks, Bored Apes, and others were likened to “levered ETH exposure”. The core thesis was that these NFTs would run in tandem with ETH’s price action, but with a higher beta. This did indeed play out. And unfortunately, leverage also applies to the downside. These collections have all been hit hard over the past year.

If Ordinals find strong culture-market-fit and if the ecosystem can truly empower fresh artistic expression (like recursive artworks) and find a way into the Ethereum/Solana collector base, then we could  see the “Punks” and “Apes” of Ordinals exhibit a similar relationship to BTC’s price action. Of course, the biggest problem here is selecting the right collection. Adverse selection is more common than not — specifically with NFTs where liquidity is not as robust as fungible token markets.

This is still a really interesting idea to play around with, so let’s try to straw-man this thesis.

If ETH’s beta to BTC is over 1, and Punks beta to ETH is over 1, then why would you even want to bet on Ordinals over Punks or some other “blue chip” NFT collection on Ethereum — one’s that have already been woven into core crypto culture? It’s a fair argument, but apart from BTC beta there is also the upside of being early to a strong collection in a nascent ecosystem. So the scale of returns between what may be a future high-quality Ordinals NFT and CryptoPunks are far apart.

Anyway, I am down on approximately 99% of all my NFT purchases, so what do I know? The speculative angle of the Ordinals ecosystem is indeed enticing, but with higher rewards comes the inevitable trade-off of higher risk.